Discussion:VA disability award letter
From TaxAlmanac
Discussion Forum Index --> Tax Questions --> VA disability award letter
| 2 April 2007 | |
| Client received W2 in Jan for military income earned in 2006. Subsequent letter in Feb awarded client tax free monthly disability benefits, retroactive to October 2006.
Where on the 1040 do I adjust the W2 income so that the disability (tax free) portion is not included and taxed? thanks in advance Jim F | |
| 3 April 2007 | |
| An adjustment to W-2 income would not be allowed. However, if the client received retirement income from the Department of Defense in October, November, and December, an adjustment would be allowed if the client filed a VA Form 21-651 (waiver of DOD retirement benefits) with the Veteran’s Administration. | |
| 19 February 2008 | |
| Ok, I have one of these this year as well and I'm not sure I agree with Riley (which i'll expand on in a moment) but my question also goes another direction.
Client received a disability severance of $30k upon honorable discharge from army. Received a w-2 in the amount of $35k for year. After discharge, received a VA determination. Veterans Affairs sent along a statement that the severance pay should not be considered taxable and they should request a refund from DFAS if within the timeframe. VA determination was made too late for client to request a refund from DFAS so the VA states they should write "St.Clair vs The United States" across the top of the return and attach disability/severance documentation. I can't find any reference to St. Clair except some 1890's navy murder case. Either way, I've found a reference in IRS pub 525 page 17 concerning retroactive VA determination and it appears that the income does not have to be included. I guess I can just adjust my w-2 entry to pickup the non-severance part of his income. Now, this drops the family (married, with one child) income down to around $7k which brings up EIC. I'm guessing if you agree the above isn't taxable, then it doesn't look like it should be included in EIC either, but it just makes my spidey senses a little tingly. Also have thought about just walking away from this one..... Thanks for any thoughts! | |
| 19 February 2008 | |
| The St. Clair case is completely different from Anchorman's case. The St. Clair case involved an Air Force sergeant who was retired from active duty due to a service connected disability. Not all members receiving VA benefits are retired on account of service connected disabilities.
Mr. St. Clair received a severance disability check for $23,514. Mr. St. Clair successfully argued that he was retired on account of his disability and that the amount received fell under Internal Revenue Code § 104(a)(4). In your client’s case, he appears to qualify for exclusions under Sections 104(a)(4) and 104(b)(2)(D). Incidentally, if you would like to read the St. Clair case, see St. Clair, Richard v. U.S., (1991, DC VA) 69 AFTR 2d 92-1209 , 778 F Supp 894 , 91-2 USTC 50457. | |
| 22 February 2008 | |
| Thanks! For future reference, where can I search for these cases? Obviously it would have helped if I had the full name, but I was still coming up with nothing. | |
| 22 February 2008 | |
| If you subscribe to CCH, BNA, RIA, etc, you should be able to find these cases in the public domain module. | |
